China's thirst for energy complicating global policy

NINGBO, China—Barely a dozen years ago, when China's lamps still burned low, the country didn't need deep-sea oil ports, massive tank farms and a brawny foreign policy to procure oil in far-flung spots.

Today, China is an oil-guzzling dragon with a voracious thirst. Supertankers stretching three football fields in length now wait to enter China's deep-sea ports.

The busiest oil terminal is at Ningbo on the East China Sea. Shipping records show that in November, supertankers arrived there from Saudi Arabia, Oman, Iran, Yemen, Equatorial Guinea, Angola and Congo to feed a craving that's helped drive up crude oil prices, rattle global politics and put China and the United States at odds in some of the world's most unstable regions.

China's thirst for oil has emboldened Iran and complicated the refugee crisis in Sudan. With its economy growing at a 9 percent annual rate, China is also courting many of America's oil suppliers, including Canada and Venezuela.

Increasingly, the United States and China are throwing elbows as global rivals for energy. The tussle could get more aggressive if the two nations can't manage to co-exist in the global energy contest.

"We've got to start those discussions before the race for oil becomes as hot and dangerous as the nuclear arms race between the U.S. and the Soviet Union," Sen. Joseph Lieberman, D-Conn., said in a Nov. 30 speech to the Council on Foreign Relations. "If we let it go, this could end up in real military conflict, not just economic conflict."

Compared to the United States, which consumes 25 percent of the world's annual oil output, China may seem like small potatoes. It burns only 6 percent of the world's production. Yet its energy use is rising steeply.

China exported more oil than it imported until 1993, when imports began to surge. This year, it's importing 3.4 million barrels a day, and some estimates say that within a decade it'll need 7 million barrels a day. Within two decades, demand could reach 12 million barrels a day, which would equal U.S. imports today. China's oil thirst since 2000 has accounted for 40 percent of the global demand growth for crude oil.

Senior Chinese officials grow testy at the suggestion that China's rising needs are roiling oil markets, saying the nation is following a natural path to prosperity.

"Some people complain that China is driving up oil prices. They think the reason lies in China's high consumption of oil," said Zhang Guobao, the vice-chairman of the National Development and Reform Commission. But Zhang said that China's per capita energy consumption is one-sixth of developed countries' and deserves to rise.

"Chinese people want to live a prosperous life. So the world should respect China's right to development," Zhang said.

China still wastes energy, leaving huge potential savings from efficiency. To generate $1 million in economic output, China needs eight times more oil—or its energy equivalent—than Japan does. Chinese officials claim a turnabout in efficiency is under way. Last summer, China made fuel standards for cars more stringent than those in the United States are, and a campaign is afoot to ramp up reliance on renewable energy.

Some experts suggest long-term projections on China's energy needs may be premature because the nation is capable of rapid adaptation and change, and of greater reliance on its vast coal reserves.

Some 68 percent of China's power comes from coal, and the nation is building electric power plants at a rate never seen before on Earth, fueling them from unsafe shafts where thousands of miners are killed each year.

China built power plants this year generating 68 gigawatts of electricity and plans 80 more gigawatts of capacity in 2006, equal to the entire capacity of Britain.

"It took the U.K. 110 years to build those 80 gigawatts," said James M. Brock, an expert who advises the Beijing office of Cambridge Energy Research Associates, a U.S. consultancy.

Nonetheless, China is seeking oil security differently than other countries in East Asia. It's sent its three major state-owned oil companies to scour the globe and invest in foreign oil companies and oil fields.

Some analysts find China's efforts to control oil supplies perplexing.

"Oil is a tradable commodity. So what's the difference between buying it in the ground in Ecuador or buying it on the spot market?" asked David Hurd, a Beijing-based oil and gas analyst for Deutsche Bank. "There's some security to be had. But in times of crisis, there's little security unless you control shipping lanes."

China's strategy has led it to bid heavily—and even to overpay—for some assets.

"It's adapted a very 19th century approach to energy security, where you seek an almost mercantilist lock-up of energy sources," said John J. Hamre, the president of the Center for Strategic and International Studies, a Washington public policy organization.

China has some reason to be nervous. While imported oil makes up only about 12 percent of China's total energy needs, its energy lifelines increasingly lead to the volatile Middle East. Some 60 percent of China's oil imports come from the Gulf region. Supertankers carrying the oil must pass through the pirate-infested Malacca Straits off Malaysia, where China's oil is protected by the U.S. Navy. China is beefing up its own navy, but it still can't protect faraway sea-lanes.

To diversify its suppliers, China has gone oil shopping in Central Asia, West Africa and even in South and North America.

Sometimes, Chinese oil companies simply bid high, as CNOOC Ltd., one of the national oil companies, did last summer when it offered $18.5 billion for the California oil company Unocal, a deal that was derailed by Capitol Hill critics who suggested that it threatened U.S. national security.

At other times, Chinese diplomats trail the state oil companies, sweetening investment bids with offers of few-strings-attached aid packages, hands-off political support and weapons.

"Everywhere the Chinese go in the developing world, they go with a lot of development money," said Gal Luft, a Washington-based analyst and the executive director of the Institute for the Analysis of Global Security, a nonprofit organization that focuses on the relationship between energy needs and the economy and national security.

China has offered large amounts of development aid in Africa, where it gets 28 percent of its imported crude and plays an increasingly important diplomatic role.

Last year, China gave Angola, its second-largest oil supplier after Saudi Arabia, a $2 billion oil-backed loan to help repair its war-ravaged national infrastructure.

Such loans come with none of the lectures on human rights, good governance, religious freedom and fiscal reform that accompany U.S. assistance.

In fact, China has courted oil-rich nations such as Sudan, Venezuela and Iran that are on the outs with Washington, even dangling the possibility of using its United Nations Security Council veto to protect them against sanctions.

China last year repeatedly blocked U.N. attempts to punish Sudan for failing to stop atrocities in its Darfur region. China owns a 40 percent stake in the major oil consortium drilling in Sudan, and it buys half of Sudan's crude exports.

Eyeing Nigeria's oil fields, China has offered Lagos some $7 billion in investments and said it may sell the country fighter jets, too.

Iran, which won pledges from China last year for $70 billion worth of oil and natural gas deals, also enjoys vital support from Beijing. Iran now appears confident that it can resist pressure from the European Union and the United States to give up its nuclear program, certain that China will veto any attempt to impose U.N. sanctions.